The best little warehouse stores in Southwest Texas.
Food City is an exception. Most warehouse units relegate non-foods to a very minor position in favor of heavy emphasis on groceries and/or perishables. Judging from Food City's example, other stores may be making a mistake.
Sales of health and beauty aids and general merchandise at the San Antonio, Texas-based chain, which operates 24 warehouse units under the Grocery Warehouse logo and two conventional stores, amount to 7% to 10% of overall store volume. And non-foods countributes "a significant share of store net profit."
That assessment comes from Vic Forestello, non-foods director, who proves his point with an ongoing net profit analysis of his department. Without non-foods profits, he believes, grocery prices would have to be increased, which would encroach on the warehouse-store concept.
While non-foods has secured a definite niche in Food City's warehouse stores, the road has not been easy. Neither was the path for the warehouse concept itself. The story begins in 1977 when the chain of 15 conventional stores faced a series of severe competitive pressures that forced the closing of several small chains and independents and shoved a powerful local chain into Chapter 11.
The move toward warehouse operations, which began in 1978 with the conversion of a conventional store, was an act of desperation. "If we hadn't switched away from conventionals," says Curtis Scheh, senior vice president, finance, "we probably wouldn't have made it."
In preparing for the new merchandising format, Food City President Art Thompson visited box stores and limited-item stores in various locations around the country, gathering some concepts that he would later be able to apply. This was part of a learning process that Scheh says continues to this day.
Early on, for instance, the focus was almost entirely on groceries, with perishables taking a backseat. Perishables were eventually upgraded and in 1980, non-foods, then given only a token representation of health and beauty aids and GM, began its ascent.
Forestello traces the change to a two-part realization: (1) that "customers want a certtain amount of one-stop shopping convenience even in warehouse stores"; and (2) that non-foods' potential profit contribution could be a decisive factor in the success of a warehouse store. Meeting the Challenge
In making the leap from the virtually invisible non-foods presentation of yesteryear to today's sizeable offering, Forestello took upon himself the concept and execution of a "new look" in health and beauty aids merchandising and operations, including deal-to-deal buying. He turned to a service merchandiser to develop a warehouse-store program for general merchandise.
Joe Diamond, vice president of Mandel-Kahn Industries in Houston, became Johnny-on-the-spot.
"We'd been Food City's biggest GM supplier in its conventionals for many years," recalls Diamond. "But we were newcomers in the field of warehouse stores so it was quite a challenge." But the potential was clear. Diamond had participated in converting an independent's store to warehouse operations and had been amazed at the non-foods volume generated.
"We knew that dealing with warehouse shelving was tricky," he says, "but with just the little experience we had we saw that with sufficient space we could do business. Warehouse store traffic will sell non-foods at least as well as, if not better than, conventional stores."
As it has worked out, M-K "boxed out" the deep warehouse bins for its primarily pegged merchandise. This required considerable measuring, planning and building by the company's fixture department as one by one Food City's warehouse stores were adjusted to bigger presentations of non-foods. While most GM categories in larger stores are fitted into in-line positions, deep, 3-D endcaps are widely used in the smaller stores. (One store has 10 GM ends.)
overall store footage for Food City's Grocery Warehouse outlets ranges from 18,000 square feet to the company's 45,000-swuare-foot flagship store in Austin, Texas. Located in a new building, the big unit opened in 1982 and devotes 487 linear floor feet to non-foods. Less Flexibility
How does GM merchandising in warehouse stores compare to conventional stores? Diamond says the main difference is that there's less flexibility. The 8-foot shelf segments may not suit the preferred footage for some categories. Integration within grocery is also more difficult, especially in small stores. Four-foot, eye-level cut-ins, so common in integrating standard grocery shelving, are not feasible. And the heavy warehouse shelving is not very adjustable.
Product variety is about the same as in conventional stores, Diamond says. "If we have little space for our soft goods, we go with just our best sellers, like in conventional stores...more space, then the next best items." The product mix, he points out, tends toward the lower end in pricing since the warehouse stores appeal more to middle and lower-middle income customers. But that, he says, is also true of conventional stores with the same customer base.
Diamond adds that pricing in the warehouse store is a management decision, just as it is in conventional stores. Food City's GM prices are discounted on selected lines, including school/stationery, mops and brooms and hair accessories. Magazines and books are sold at regular retail prices.
Less flexibility on the shelves is countered by two warehouse-store pluses:
* Clipstrips acquire new dimensions. Diamond says the wide supporting standards for the shelving are "perfect" for clipstrips. "It's even better than J-hooking," he says. "We don't interfere with product on the shelf and the clipped merchandise really stands out. And sells."
Typically, every shelf-standard in the entire grocery/non-foods section is festooned with a strip devoted to related merchandise. The 12-clip strips were replaced recently with nine-clip units to reduce inventory.
* Floorstands are used in abundance. Besides several HBA shippers, Food City's warehouse stores display up to 12 dumps for GM. "Floorstands present a 'specials' look which fits in well with warehouse stores," says Forestello. "That's why we use them so generously. They sell merchandise and they're profitable."
Jay Jones, M-K's San Antonio district manager, presents his company's floorstand and promotional ideas at a monthly meeting with Forestello, who decides on which ones to accept on an individual-store basis. Jones notes that the floorstands (which include generic dumps prepared by M-K) are sometimes massed for seasonal promotions in the lobby and are often set adjacent to or even within grocery end displays.
Most floorstands stay up for three weeks on an alternating basis. In stores authorized for 12 floorstands, for example, three new shippers are placed each week, while three old ones are removed by M-K. This is done on a programmed system with a placement date and a pull date for each store. Leftover merchandise is credited to the store as part of the merchandiser's guaranteed-sale policy.
M-K supplies Food City through three divisions, each with its own buying personnel and service merchandising staff. The divisions are: Supermarket Merchandising, for socks, pantyhose, kitchen domestics and other soft goods; Decor Distributors, for party goods, hair accessories, toys, footwear, cosmetics, sewing notions and pet supplies; and M-K Housewares, for hard goods, automotive (except motor oil), baby goods, brooms and mops, school/stationery/office supplies and bicycle accessories.
"We work very closely together," says Forestello. Besides meeting with Jones, he reviews the GM situation with Diamond and other M-K executives every other month. He also visits M-K's Houston office a few times a year--primarily to scout seasonal promotions--and receives monthly sales reports on an individual-store category-by-category basis. HBA, Warehouse-Style
While general merchandise's shelf display is similar to that in a conventional store, health and beauty aids' presentation is strictly warehouse-style. With a few exceptions in remedies, HBA items are all displayed in cut cases.
This provides a warehouse look and simplifies stocking for a meaningful saving in labor costs. Obviously, pricing and stocking multiple cases of a single item is much more efficient than pricing a few cases (or units) of a single item and then hand stacking it.
Also the section carries many fewer items than a typical store--about 400 total items comprising the fastest sellers in each major category--which also simplifies ordering.
Health and beauty aids is one of Forestello's prime concerns. He does the buying on a deal-to-deal basis through the company's 120,000-square-foot warehouse. HBA departments average 36 to 56 linear floor feet, excluding sanitary goods, 16 to 24 feet, cosmetics and hair accessories.
Overall HBA margin is under 18%, according to Forestello.
The buying process consists of loading up on products purchased on deal, similar to President Thompson's grocery-buying practice.
"I don't normally handle generics or private label," Forestello says, "just national brands. And while I try to keep in stock on the best selling brands, that's not always possible; although I usually have at least one size or flavor on hand. Our customers know they're getting low, low prices and, in most cases, if we don't have their favorite brand at a given time, they will likely switch or postpone their purchase."
He keeps records on previous orders and gets daily updates on warehouse inventory as well as reports from the field on store stock. Forestello aslo takes a three-store sample of representative stores which supplements his inventory analysis. He admits to being helped by experience and a "feel for deals" that signals a manufacturer's deal pattern.
He buys disposable diapers by the carload and HBA in quantities of up to 2,000 cases or more ("300 cases is my starting point for toothpaste," he says), but he can't always buy enough of some deal items for all stores. Then he has to devise a special allocation system, trying to keep a product uniformity in stores in a given area.
While clerks order HBA merchandise, they also receive distribution (based primarily on store volume) and draw this down before reordering. The upper decks of shelves serve as miniature warehouses.
Stores receive a weekly bulletin of stock on hand at the warehouse and a review of upcoming advertised specials. Ten to 12 HBA ad features run every week. Forestello says he "work hard" at obtaining "all possible allowance monies," which are reflected in costs to maintain the lowest prices.
He rarely resorts to diverters, saying, "I don't need them. After all, I buy as well or better than they can." Sometimes a local deal materializes. "The salesmen call me," Forestello says. "They know if it's a good selling item and I'm not overstocked, I can make a deal quickly."
There are occasions, Forestello admits, when he slips and buys a dog. In what event, the merchandise is marked down sharply and moved out. There's no crying over spilled milk at Food City.
Along with HBA, Forestello also buys batteries and light bulbs through the warehouse. Motor oil and a few other fast selling car care products are ordered by the stores' non-foods clerks through a local oil jobber, except for promotions. In that event, Forestello buys in truckload quantities that are dropped off at the warehouse for store distribution.
It takes a special measure of motivated personnel and teamwork for the non-foods program to work smoothly, says Forestello. Prior to joining Food City in 1976 he had 21 years under his belt as non-foods director at Handy-Andy, a local chain. Counting His Blessings
At Food City, he's supported by Henry Jones and Joe Tristan, experienced field supervisors whose jobs occasionally include transferring merchandise between stores to balance inventories. Most stores have a designated, full-time Home Center clerk. The smaller stores share a single clerk who circulates between them.
He or one of his supervisors checks every store every week and they often assist in ordering warehouse merchandise. Forestello himself makes store calls as often as three days a week, driving his car or flying in the company plane.
"I like to write the order myself when I'm out of town," Forestello says. "That and talking with the clerks is the best way to keep your hands on the guts of the business. The clerks aren't afraid to speak out, either, or to ask questions. I encourage this. When I'm out there, I want to hear it as it is. Working together is how we build."
At 60 years of age, but with the nervous energy of a young man, he counts his blessings.
"I feel we're breaking new ground. That's always exciting. I have top management's support, good people around me and there's appreciation of non-foods importance on the part of store people. Here we're not a stepchild, getting space leftovers. We've in the plans. Now it's up to me--and favorable economic times--to keep going and growing."
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|Title Annotation:||non-foods helps make Food City|
|Date:||May 1, 1984|
|Previous Article:||51st annual report of the grocery industry.|
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